THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

JOHN KING, HOST: Thanks Wolf. Good evening everyone. Two big breaking stories tonight, first Hurricane Earl is a dangerous storm and it's closing in on the east coast. Its rainy bands and gusty winds are now approaching North Carolina's outer banks. CNN meteorologist Rob Marciano is waiting at Kill Devil Hills with the latest -- Rob.

ROB MARCIANO, AMS METEOROLOGIST: John, winds have been picking up, the clouds (ph) lower and we just got a couple of showers. East winds have been persistent all day. And they're now beginning to increase. The storm itself is about 150 miles due south of this position and heading directly here in a northward path at about 18 miles an hour.

As mentioned, a category three storm with winds of 150 miles an hour. It has shrunk just a little bit, such that the hurricane-forced winds will go out 70 miles from the center. So if this thing gets within 50 or 60 miles of the coastline, then we'll get rates (ph) with at least category one strength winds and that's the main concern here.

What kind of winds are we going to get? If the (INAUDIBLE) west, we'll get into the core of that western eye. If it stays on track, we'll be spared just a little bit, but one thing is for sure. This ocean is going to continue to roll in with huge, huge waves and that's going to erode the beach and in some case, it's going to over wash the roadways.

And if it's as bad as Isabelle was back in 2003, it will cut through some of those roadways. So evacuation orders have been in place for much of the outer banks as this storm makes its approach here. Not only here, John, but obviously once it gets past here tonight, it heads to New England and it will make a run at Cape Cod and the islands of eastern Massachusetts -- John.

KING: We'll keep in touch with Rob throughout the hour. We'll also check in a bit later at our Severe Weather Center and hour Hurricane Center, keeping a watch on Earl.

Another big story we're watching tonight, the face-to-face talks between the Israeli Prime Minister Benjamin Netanyahu and the Palestinian Authority President Mahmoud Abbas. Those talks wrapped up this afternoon, but they're already talking about getting together again. But there's also word just into CNN that Hamas is planning to join forces with 10 other militant groups to attack Israel. How might that impact the peace negotiations? CNN's Hala Gorani has the latest from the State Department -- Hala.

HALA GORANI, CNN CORRESPONDENT: Hi there, John. Well, well it could have actually a very nefarious impact on these talks because one or two attacks, as we saw, for instance the attack against four Israeli settlers who were killed just a few days ago, the leaders can say well we're not going to let the extremists dictate the agenda. But if it becomes an active campaign and if Hamas is in fact joining forces with 11 other militant groups to continue to try to derail the peace process by actually killing settlers, Israelis and mounting other types of attack, then we might see a real issue, John.

KING: And Hala, when you have the two leaders saying they'll meet again in a couple of weeks, is that a sign they're making progress, or just that they've agreed to keep meeting?

GORANI: Well, in fact, after the negotiations were over and the two leaders parted ways I asked one of the negotiators, I said what's going on now. He said well we're having a meeting about the next meeting. So the question is once you're done with the meetings and organizing the next talks, what are you actually going to discuss and find a resolution to?

And at this point that is still unclear. What the former Senator, George Mitchell said was we need a framework of understanding. Essentially, we need to tell the world what we're going to discuss in order to come to a deal potentially in the next year. But so many issues are up in the air, and especially that settlement freeze. The Israelis for 10 months did not build in the West Bank. If they build again after the freeze expires, the Palestinians have said we're going to walk away. So despite all the good will, it could still end with failure, yet again in a few weeks -- John.

KING: And you will keep an eye on it. Hala, thanks from the State Department. If you haven't met directly face-to-face in two years, the fact that you're going to meet again I guess is one sign of progress, but we'll see (INAUDIBLE) difficult issues.

Now let's move on to a crackling political story, the big debate across the country about illegal immigration. If you tune into campaigns across the country, you would think illegal immigration is on the rise. The problem is getting better. You know the old saying, the numbers don't lie? Well there's some new numbers out today and before we break down the politics, let's take a look at these numbers.

They come to us from the Pew Hispanic Center and it is a research study on the population of illegal immigrants in the United States. We'll go back to 2000 and let's look through here. This is from the Pew Research Center again, 10 million illegal immigrants in 2004, 11 million in 2005. It keeps going up. There's your peak at 12 million in 2007.

The Pew Research Center now says it's down to 11.1 million from that peak a couple of years ago of 12 million Americans. Why is this happening? Why is going down a little bit? Well the Pew study says economic downturn, fewer jobs in the United States. Fewer people deciding to come illegally across the border.

Also a hostile climate for illegal immigrants, Arizona's new immigration law could be one example. More federal enforcement could be another. Now we want to look again at one of the big states in here, if you look at the population map, the darker the state, the purple color, higher population of illegal immigrants.

Big states like Texas and California, big percentage of the population, not necessarily a high number in Arizona. You see the other states as it plays out. Well, there are elections everywhere in America. So even as the numbers go down, the political rhetoric is coming up.

Let's talk it over with our panel. Michael Scherer is the "TIME" magazine White House correspondent, Republican Tom Davis is a former congressman from the state of Virginia, our senior political analyst Gloria Borger, and with us from New Orleans Democratic strategist and CNN contributor James Carville.

James, I want to ask you first whether this is a product of people really thinking the problem is worst or just a vehicle for economic anxiety at a time high unemployment -- we'll talk about Arizona in a minute. But Joe Donnelly is a Democratic congressman in Indiana. That's not a border state. Here's what he's playing on TV.

(BEGIN VIDEO CLIP)

REP. JOE DONNELLY (D), INDIANA: I went down to the border and saw for myself just how bad the situation really is. That's why I voted to hire 5,300 more border agents, penalize any business that hires illegals, deport illegals who commit felons, and eliminate amnesty because no one should ever be rewarded for breaking the law.

(END VIDEO CLIP)

KING: A conservative Democrat, James, there. Why is this such a big issue if, as Pew says, the numbers are going down?

JAMES CARVILLE, CNN POLITICAL CONTRIBUTOR: The numbers are going down. The crime numbers are going down. I suspect that the answer is, is this tapping into economic anxiety. And it's sort of odd that people are blaming the illegal immigrants for their problems more than they're blaming the banks for their problems. I'm at a loss to give you an explanation because it is so at odds with the facts, but that's the way the people feel.

And I've talked to these campaigns around the country. And they're saying they see this issue on the rise. And by the way, there are more troops on the border now than they've ever been. There's been a big increase of our presence on the border in addition to the economic downturn. So the only rational explanation is economic anxiety or people are just blaming President Obama for everything, regardless of the facts, which is another possibility.

KING: Not a surprise to anybody in this room that it would be an issue in Arizona. There's a big governor's race there. Jan Brewer, who has had a competitive Republican primary, then she signed that new immigration law in the state, the tough anti-immigration law in the state. Her popularity soared. She's in a general election now against Democrat Terry Goddard. He opposes SB1070 as it's called, the Arizona law. They debated last night.

(BEGIN VIDEO CLIP)

TERRY GODDARD (D), ARIZONA GOV. CANDIDATE: What I'm concerned about is border security. And as Governor Brewer herself has said on a number of occasions, SB1070 does nothing to secure the border. It does nothing to fight border crime.

GOV. JAN BREWER (R), ARIZONA: We have the right to enact laws and it mirrors the federal law and if the feds won't do their job, then we'll do their job for them. We will help them.

(END VIDEO CLIP)

KING: Why?

GLORIA BORGER, CNN SR. POLITICAL ANALYST: It's an anti- government issue as well. It's the fact that people see a problem that they believe the government has not addressed, the border security being exhibit "a" here. And they want the government to do its job. And what she was talking about last night is OK, if the feds aren't going to do their job, then we're going to force them to do their job. And that plays very well right now in this environment.

KING: Would you as a Republican, you used to run the Congressional Campaign Committee, telling candidates running as a Republican what to emphasize? Would you emphasize immigration right now or would you be talking about direct economic issues like jobs?

TOM DAVIS (R), FORMER VIRGINIA CONGRESSMAN: Well, you could tie it to the economy, but the economy is the big job and for the Republicans (INAUDIBLE) spend $1 trillion, unemployment has gone up three points. You want to stay on the economy if you're a Republican at this point. Your cultural base will stay loyal, notwithstanding.

KING: And James just mentioned, maybe people want to blame President Obama for everything. We're going to talk in a little bit about his declining popularity and his trouble helping Democrats in this campaign. But Michael, at the White House they get very frustrated when this happens because they say look, just compare our numbers to George W. Bush. More border patrol, now they're sending the National Guard down there and they think you know hello, why can't we get any credit?

MICHAEL SCHERER, WHITE HOUSE CORRESPONDENT, TIME MAGAZINE: One interesting thing is there's a tension between the midterm politicians on this issue and the general election presidential politics on this issue. It's good for Obama to seize on immigration and fight back against these -- the Republican position. You've seen him doing that this summer because he needs the Hispanic vote in a number of key states in 2012. It's bad though for people like Joe Donnelly who is fighting tooth and nail right now for a district that he won last time by 67 percent. So there's a tension now between what people on the Hill want in the Democratic Party and people in the White House (INAUDIBLE).

KING: We'll explore more of that in a minute. More to come from our panel, but as we go to break President Obama, he once had the Midas touch. Well how are they now calling him, as in Michael's new article, Mr. Unpopular?

And everybody here has political experience. James and the congressman have actually run and directed campaigns. How does a candidate recover from this?

(BEGIN VIDEO CLIP)

UNIDENTIFIED FEMALE: We have done everything that we could possibly do.

(END VIDEO CLIP)

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

BREWER: I have done so much and I just cannot believe that we have changed everything since I have become your governor in the last 600 days. Arizona has been brought back from its abyss. We have cut the budget. We have balanced the budget. And we are moving forward. We have done everything that we could possibly do. We have -- did what was right for Arizona.

(END VIDEO CLIP)

KING: The incumbent Governor Jan Brewer last night in a debate in Arizona. James Carville, you've advised many candidates. That's the part of the debate that you rehearse over and over and over again, your opening statement. Get them at the beginning, if you're leading in the race, if you get them there, it might be over. How does that happen?

CARVILLE: I don't know. Edward Bennet Williams (ph) once said that you can indict a ham sandwich. I think the Republicans are going to see if they can elect a ham sandwich here. I don't know if that woman -- I'm not from Arizona and she just came on the scene. I don't know if that's normally the way that she is or there may be some physical reason.

I mean I don't know. Maybe she was on some kind of medication or something. But that -- that -- I've seen a lot of debates. And maybe that's an explanation that she was -- you know maybe she was taking something you know. But I don't know if it's going to matter. But I haven't seen anything like that in my life in politics to be honest with you --

(CROSSTALK)

KING: I was e-mailing with a Democrat in Arizona today who says you know we're still behind. This is still a hard race, but they think maybe that's an opening. But to change the point I've interviewed her I think three times now, including in person a couple of times and she clearly has talking points. She has her points she wants to make and it's hard to get her off them sometimes. But she has presence, and she seems like an effective communicator but that's not it.

BORGER: Well this was a panic attack of some kind or anxiety, melt down. This was the beginning of the debate when you're supposed to give your little spill about why I ought to be reelected, et cetera, et cetera, and she just froze. But also during the debate, you know, she didn't really hit some of the things that he was attacking her on. She didn't address issues, so I bet there's not going to be another debate.

KING: She said -- she did say in a radio interview today, I think or it might have been to The Associated Press is that it was the longest 16 seconds of her life. That we'll politely call it a pregnant pause in the middle there --

BORGER: Yes.

KING: -- you just have to forget about it, right?

DAVIS: Right, look, at the end of the day, you elect a lot of people that aren't good debaters. She froze. It happens sometimes. But she's right on the issues. And I think the issues in this race are going to overwhelm a lot of these others. Also, it's the first of September. If this had been November 1st, you worry about it. But I think she'll have plenty of time to (INAUDIBLE).

KING: Well you talk about (INAUDIBLE).

UNIDENTIFIED MALE: I was just saying maybe she played the sympathy card. I watch that tape, I feel for her. I mean it's very painful to watch though.

KING: Future in campaign strategist if you're (INAUDIBLE). You know, the congressman said she's right on the issues, but one of the controversial issues is that she gave an interview back in June in which she said the illegal immigration problem is so bad that there's increased violence all across the state including, she said, that law enforcement authorities were finding bodies beheaded.

Some of them buried in the sand. Some of them just lying out in the desert. And media accounts in Arizona, they've called all the county coroners around the border area. They can find no evidence that this has happened. No reported beheadings. It came up in the debate. She refused. Her opponent said apologize. Take it back. She wouldn't do that. After the debate she had an exchange with reporters.

(BEGIN VIDEO CLIP) UNIDENTIFIED REPORTER: (INAUDIBLE) why wouldn't you recant the comment you made earlier about the beheadings in the desert?

BREWER: Well this was an interesting evening tonight and of course you saw a complete display of the difference between myself and Terry Goddard.

(CROSSTALK)

UNIDENTIFIED REPORTER: Will you answer the question, Governor? Please answer the question.

UNIDENTIFIED REPORTER: About the headless bodies? Why won't you recant that? Do you still believe that?

UNIDENTIFIED REPORTER: Come on, Governor.

BREWER: OK, thank you all --

UNIDENTIFIED REPORTER: Governor --

(CROSSTALK)

UNIDENTIFIED REPORTER: Whoa!

(CROSSTALK)

UNIDENTIFIED REPORTER: Come on!

(END VIDEO CLIP)

KING: She said it was an interesting night and you can't disagree with that.

UNIDENTIFIED MALE: I take back what I said about sympathy. It's hard to have sympathy for that.

BORGER: When you make a charge about headless bodies, you have to be able to defend it, right? I mean you're a former elected official.

(CROSSTALK)

UNIDENTIFIED MALE: They're out there with the WMD somewhere. They're looking for it.

(CROSSTALK)

KING: Go ahead, James.

CARVILLE: John, I would remind people that the governor of Arizona, I'm pretty sure is the commander-in-chief of the National Guard and has to respond if there's a say, a prison riot or an emergency or something like that. It's not just like being a member of Congress where you vote on the issues and say well I like this person's vote. I mean there is an executive function there and it could be someone that would be -- have to handle a crisis sometimes. Things that we don't know and I don't know. Looking at that, if I was from Arizona, I'd have quite a bit of concern about her ability to do that.

KING: Well that is the point James that the Democrat I e-mailed earlier today made. They said they will now try to raise the competence question. That is she competent enough to be chief executive of the state. I had an interview on another issue with Sheriff Joe Arpaio, the Maricopa County sheriff.

He's very controversial. Everyone knows he's a national figure in the immigration debate. But I asked him about this. I said look, your county is not along the border. But you talk to the other sheriffs all the time. Have you ever, ever had anyone report a beheading?

(BEGIN VIDEO CLIP)

SHERIFF JOE ARPAIO, MARICOPA COUNTY, AZ: I'm not going to speak for her. That's her comments. I'm not running for governor. I just spend 14 years in Mexico on the border. But I don't know, maybe she was talking about across the border. You know Mexico and the United States and Canada are North America. I don't know what she was talking about. But I'm not going to talk -- I'm not running for governor. You're going to have to ask her what she meant by that, not me.

KING: All right, let me just set her aside, then. Have you ever come across evidence or a report from your county or a neighboring county of a beheading in Arizona?

ARPAIO: Well I haven't. Doesn't mean other people have, but I'll tell you one thing, there's plenty of beheadings going on right across the border. I hope it doesn't come across the border into my county.

(END VIDEO CLIP)

KING: What's the technical term for that? Deflection?

UNIDENTIFIED MALE: Yes, I think you can spin that and say I was talking about the situation. We don't want it coming across. But she's going to have to answer this.

(CROSSTALK)

KING: The governor said in the Arizona desert.

BORGER: Right and here's the smart thing her opponent did, Terry Goddard. What he did was instead of attacking her frontally on 1070, which is very popular, he attacked her honesty and he attacked her competency essentially and those are two things that you can make a lot of hay out of in a campaign. KING: All right, let's take in a quick break. Our panel will stay with us.

When we come back, remember right after he won the election and when he was inaugurated, some called President Obama the messiah. Some said he had the Midas touch. He could do no wrong. Even the president has joked about walking on water, well pick up "TIME" magazine, Mr. Unpopular? We'll be right back.

(COMMERCIAL BREAK)

KING: It is 61 days to a very important midterm election and it is 589 days since Barack Obama took the oath of office as the president of the United States. How could he have gone from popularity up here to numbers down here? We've talked about it a bit before but Michael Scherer has a compelling article -- excuse me -- in this issue of "TIME" magazine where he uses the term Mr. Unpopular.

And Michael one of the fascinating things is when you look back, you're talking to senior White House aides about we were so high, how could you get down to where you are now. And one of them concedes to you that maybe they over inflated. And he said quote "it was sort of fake", meaning it wasn't all --

SCHERER: Yes it wasn't all that -- they have -- they have a numbers problem now. Obviously the economy and the way things are going in the country is the dominant thing and midterms are always bad for the incoming president. So that's the big issue, but on top of that they have promises that were made during the campaign. I mean he was going back -- I anchored my story in Elkhart, Indiana.

He's been to Elkhart three times as president or the region three times as president. He was there a number of times as candidate. Every time he went there he said I'm the guy who's going to solve your problems. I'm going to be able to take care of this for you. Unemployment in Elkhart is now above 13 percent. It's been rising again this summer. He just hasn't been able to deliver on his rhetoric.

KING: Is it tougher, James, for this president because expectations, the ones he set and the ones many people saw in him may be elevated even higher, were so high that when you have these tough times there's not much he can do.

CARVILLE: Yes. I mean and look, we've had persistently high unemployment. But the other thing is -- is my criticism of the White House has been that they never say that they have a strategy. They have policies and some of the policies actually I think are quite good, others disagree with it. But I think they thought that the recovery would happen sooner and they'd be in a sort of better environment so they didn't have the need to explain to people just how difficult this was and just how deep a hole they were in.

And I think that they thought by him you know being inspirational that the natural flow of things would go their way. And this -- and as we know now these recessions after financial crisis are just awfully long and awfully nasty and that's what this country is experiencing and it's not good politically.

KING: That's an interesting point because many people in town say you know when the tough times under Ronald Reagan, maybe you didn't know where you were and it was uncertain and it was anxious but you knew where you were going because he always laid out this picture of don't worry, we'll get through this, and here's where we're going to end up. Does this president not do that?

DAVIS: Managing expectations is the hardest thing for a political leader and here he has disappointment with his base. He has got anger among Republicans. Anxiety with the swing voters. And right now it's combustible. You can come back from this. Reagan came back from this. We saw Nixon fall very quickly. We saw Bush one fall very quickly --

KING: That's a 2012 calculation --

(CROSSTALK)

KING: Any Democrat out there on the ballot in 2010 is listening to that --

(CROSSTALK)

BORGER: And maybe -- and maybe people feel that they don't know where we're going because this is a president who has tried to do so much. He had a choice. He could have focused on the agenda he ran on or on the agenda he was handed. Instead he decided to do both. Even given this huge economic problems that we face and looking back on it, it's always easy in hindsight, people may say too much.

SCHERER: And I think what James said is key. He doesn't have a big strategy because they kind of reject it at the White House. You often hear the president talking about I'm not going to worry about short-term politics.

BORGER: Right.

SCHERER: I'm going to do my policies. I'm going to do what I think is right. I believe that you know the right policy is going to be the good politics in the end. And that's just not really the case. You need -- you need a way of bringing this, of communicating better what you're doing to the American people and all across the country right now people are saying I don't really understand what he's doing.

KING: I want to thank everybody for coming in. I think we might see you a little bit later. Congressman, Michael, thanks, James to you in New Orleans, thank you.

A lot more to come in the program. We're talking right here about how at the moment anyway President Obama is down a bit. Well who is up? The Tea Party is up, especially this one Tea Party candidate, Joe Miller just stunned the establishment in Alaska. He's now the Republican nominee for Senate. We'll go "One-on-One" when we come back, including his controversial Social Security solution. And we'll use the "Magic Wall" to map out -- a lot of people criticized the Tea Party. They say who are these guys? Are they extremists? Well a number of candidates, including Joe Miller, have Ivy League ties.

And Pete is on the street tonight and he's always trying to cause me trouble. Question time for this guy.

(COMMERCIAL BREAK)

KING: Welcome back. Let's check in with Fredricka Whitfield for the latest news you need to know right now -- hi, Fred.

FREDRICKA WHITFIELD, CNN ANCHOR: Good to see you, John. Well the U.S. Coast Guard says the flames are out. All 13 survivors are OK and there's no evidence of an oil leak after today's fire aboard an oil platform off Louisiana.

And look at this. A couple of hours ago BP removed the cap that finally stopped the Gulf oil spill. The well is now sealed with concrete.

And President Obama is extending the trade embargo against Cuba for another year. He also scheduled his first news conference in almost four months. It is Friday of next week.

And the U.S. Justice Department sued Arizona Sheriff Joe Arpaio today saying he isn't cooperating with a civil rights investigation of alleged discrimination against Hispanics. Something tells me we'll be hearing more from Sheriff Arpaio. He always has something to say. He's saying this is like deja vu all over again. Haven't we been through this before?

KING: The sheriff is not shy. We reached out to him earlier today. I sat down for a little conversation for him. You'll be shocked here. Sheriff Arpaio says the Justice Department is suing me, he says I'll see you in court.

(BEGIN VIDEO CLIP)

SHERIFF JOE ARPAIO, MARICOPA COUNTY, ARIZONA: We thought we had this thing resolved, now they sandbag us, and they sue me. Why are today doing that when we are cooperating? It took them a year and a half why now. This is the third lawsuit they filed against the state of Arizona. Now a school district, and now me. Three times. All over alleged discrimination. It seems like they're ganging up on the people of Arizona over this illegal immigration problem.

(END VIDEO CLIP)

KING: You get the impression that maybe he's enjoying this, Fred?

WHITFIELD: Something tells me the man is not shy. He doesn't mind the limelight. KING: He's not shy at all. Fredricka Whitfield, thanks. The sheriff said he thinks the justice department is trying to make him a puppet.

When we come back, a rising start in the Republican Party, one the establishment didn't want. His name is Joe Miller. He's the Republican Senate nominee in the state of Alaska. He says the federal deficit is so bad we need to take extraordinary steps on the federal budget.

(COMMERCIAL BREAK)

KING: One of the more fascinating and sometimes controversial dynamics in the campaign is the success of tea party campaigns against the Republican establishment in big Senate races. Rand Paul is now the Republican nominee in the state of Kentucky. He's an ophthalmologist. He was not the establishment candidate. He beat the Republican leader's candidate in his home state of Kentucky to be the Republican nominee. If you move further to the west, Ken Buck is a Princeton grad. He was not the Republican establishment candidate. He's now the tea party favorite and Republican favorite in the state of Colorado. In Utah, Mike Lee knocked off incumbent Republican senator Bob Bennett at the state convention. Mike Lee, the tea party backed-candidate, now a Republican nominee. Now Sharron Angle is the candidate in Nevada. And Lisa Murkowski, a Republican of the dramatic upset Joe Miller. He was a judge once. He's a Yale-educated lawyer. He has lots of issues with the Obama administration and the Democratic agenda. I asked him first and foremost, what is the message to the Republican establishment?

(BEGIN VIDEOTAPE)

JOE MILLER (R), ALASKA SENATE CANDIDATE: Well, there's an opportunity to lead this nation out of the crisis it's in. I believe the Republican Party is well suited to take that up. The question is whether or not there's the courage within the leadership of the party to seize the moment and to recognize that the only way out of this is to get out of the age of the entitlement state. To return power back to the states, recognize the central government is broken and get the government focused on the areas, the enumerated powers that it should be doing. And the Republican Party can do it. It requires courage, because it's not the status quo.

KING: What about the current leader in the United States Senates, Mitch McConnell. Murkowski was a member of his leadership team. Is he the man to get the message? Or do you think the Republican Party needs a new leader?

MILLER: I know anybody that embraces this message can move it forward. It's going to be up to the people of this great nation. I believe the party should embrace the message. I think it's the future of the nation. Let's wait and see what happens.

KING: If you come to Washington as a member of the Senate, you'll have to vote for funding of the troops in Iraq and Afghanistan. Our viewers should know you have a bronze star from serving in combat in the first gulf war. Grade the president's message last night?

MILLER: Probably a "d." Anybody did that did not support the surge should not be taking kudos for the ultimate result.

KING: You often mention the fiscal sanity. I want to introduce our viewers. You have web video up explaining what you view as the central tenant of your candidacy. I want them to this listen.

KING: Socialism? A lot of people would agree with you on insolvency, but you may get a feisty debate on the socialism part. Give me specifics of what you mean by that.

MILLER: What do you call it when you say almost 20 percent of the federal economy is going to go under the thumb of the federal government through Obama care? That is nothing but socialism. The government is clearly marching in that direction. The entitlement state is far too large. We have to take a different direction in the nation. If we don't call it what it is, we aren't going to be able to change it.

KING: You call yourself a constitutional conservative. The Democrats call you extremists out of the mainstream. I want to throw all the labels out and go through the issues and let you explain what you would do. You say social security, for example. It is the government retirement program of the country. You say the founding fathers could have never imagined it. What now? If you come to Washington and have a social security program, you have millions of Americans who depend on it, what do you do to change it?

MILLER: My parents are dependent on it. Their primary source of income comes through social security. The primary health care provisions come through healthcare. This is not Joe Miller comes to D.C. and social security is gone. What Joe Miller does do is get the government back from the fiscal brink, back from bankruptcy, so we can ensure the contrasts we've made with our seniors, that we can honor those. We are talking about shifting those dramatically from those receiving payments. There's got to be a move outside of the system. Ultimately we want to transfer power back to the states so the states can take out the mantles of the programs if they so desire. In the shorter term many plans have been proposed that can move the shift or shift this away from government control into, you know, a sector where we can protect the funds. If it's a privatized system, for example, I can ensure that I put my money in an account that the government is then not going to steal from. I'm 43. Dated is the social security system. I don't expect to see much of that. Because the government has stolen from me. Most Americans recognize that system is broken. They understand there has to be a change longer term to ensure you can have something when you do retire, rather than depend on IOUs.

KING: It is an issue that can be easily demagogued. I want to issue a statement. Joe Miller says anybody in the system or close to the system is fine. We won't do anything significant to change your benefits. How about an American after he was sworn in Washington. Will that person grow up in America with there is not a federal social security program if you got your way?

MILLER: Absolutely. No demagoguery there at all.

KING: If you had to? A sentence or two describe Barack Obama, what do you say?

MILLER: Bad for America. He's one of the major forces moving this country towards socialism. It's the wrong direction for America. This is bipartisan problem, but he's at the front of it. The growth of stimulus programs, the growth of basically government bailouts to industries that are failing, it's not the American way, it's not the free market way. And it's killing the competitive edge. We are special as a nation. We have constitutional rights. Our view is that the founders have it right. They come from god. Government can't take them away. We restrain government so government cannot infringe upon the rights. When we're a top-down system, what's really coming out of the Obama administration, we put that all upside down. Instead, the government becomes sovereign rather than the people. The answer to the crisis is not government, it is the people. It's rejuvenating the country in such a way we can be a leader in the world again. We lost that concept. Our president put the country down, not advanced it in the nations. I would suggest for you bad for America is an apt description.

KING: Governor Sarah Palin was helpful to you. She did a robocall to help turn out votes. She has popularity in Alaska. If Governor Palin was to run for Palin runs in 2012, would she get backed by Joe Miller?

MILLER: She is absolutely a force to be reckoned with absolutely. I absolutely will support her in her endeavors.

KING: Mr. Miller, thanks for your time today. We'll check in with you over the next nine weeks.

MILLER: Thanks, John. Appreciate it.

(END VIDEOTAPE)

KING: When we come back, we'll put the tea party message to the tests. Are the candidates tapping into growing voter concerns about deficit spending and lack of tough choices here? Washington? We're also waiting an update from the National Hurricane Center on the strength and path of Earl.

(COMMERCIAL BREAK)

KING: Can the tea party sell the message you just heard from Joe Miller? And can the president do anything between now and Election Day to get the economy going? CNN contributor Erick Erickson is the editor of the conservative redstate.com. We have Democratic strategist Cornell Belcher with us here as well. We have Nia Malika-Henderson, a journalist in the room. We need one of those. Gloria Borger, she's a journalist so we have two in the room. That makes me our senior political analyst. Let's talk about what we heard from Joe Miller. Cornell, you walked into the room saying thank you for him being so candid. He is candid. He's unapologetic. He says the deficit is so bad, the fiscal balance of the country is so off that he thinks if he comes to Washington he's going to say for anybody in their 40s or 50s or 60s. Don't worry. For something born tomorrow, maybe we should let the states decide if they should do something about it.

CORNELL BELCHER, DEMOCRATIC STRATEGIST: That's outside our mainstream values. You know why social security and Medicare are so popular? Because they represent our values. We're not a country that lets old people and sick people fall through the cracks. I thank you for putting him on record saying he'd phase out social security. It's going to be an issue for them in Alaska. It points to how outside mainstream values he is. Not only for America, but for Alaska.

KING: And I think there's no question that most Americans support the social security program.

BELCHER: One of the most popular programs ever.

KING: I don't think that's in doubt. My question is are the candidates who say these things, are they tapping into a voter sense that, you know what, in the past couple of years I've had to make so many tough choices. Maybe I'm sending my kids to a state school, I have to cancel vacations. I have to make tough choices and they don't in Washington.

NIA MALIKA-HENDERSON, WASHINGTON POST: You hear about all programs of privatizing social security. I agree that it is very much going to be an easy talking point for Democrats. You saw them already send out memos this today. I think they're likely to link a lot of the candidates together and try to point them as outside the mainstream.

GLORIA BORGER, CNN SENIOR POLITICAL ANALYST: I think there's a generational issue beyond social security, John. It's something we have talked about over the years, which is that older people don't want to change anything about social security, younger people who want to have it for their own retirement are willing to do things like look at raising the retirement deficit commission reports and all the rest. But I do think people don't want to get rid of it. He's going to give the Republican leaders the establishment Republicans, real trouble in Washington, if he starts talking about this --

KING: One guy who has no problem with that is Erick Erickson. Let me ask you, do you see, now that candidates like Rand Paul, like Joe Miller, have the nominations, do you se the Republican establishment going to them? Is there pressure on them to say please, please, stop, please modify your position, or are these candidates going to say no, this is what I believe, and this is where we're going?

ERICK ERICKSON, CNN CONTRIBUTOR: In a lot of cases, there is pressure. The NRFC coming in, offering to give money. I picked early on, saying "they're my guy." I like them, you know, Joe Miller -- what's that?

KING: What's the Powerball number? ERICKSON: You know, Joe Miller, you know, I got a man crush on the guy. He's Ron Silver from the '80s in "Blue Steel." Works for me. You can almost se the guy saying extremism in defense of liberty is no vice. The Democrats are calling these guys extremists, they're saying they're outside the mainstream but, you know, a lot of mainstream voters right now, they think social security will be bankrupt and they're never going to get on Medicare.

BORGER: Republicans in Washington.

ERICKSON: Mitch McConnell is, because he knows they're out of a job.

KING: I think the question, though, is how big is the slice of Americans who maybe disagree with these guys who say Washington is so screwed up that I want the bull in the China shop to break things?

BELCHER: Well, they're driving out moderates from the party.

ERICKSON: Doesn't sound like a problem to me.

BELCHER: Yeah, but here's the problem, it is a problem for most of America because they're in, in fact, moderates. And when they forced Bennett out in Utah, one of the delegates said, he's a moderate and I don't like moderates, and that's part of the problem, there's not a moderate movement.

ERICKSON: It's the Jesse Helms strategy to a degree. Jesse Helms was noted for and has said to people that he would stay far on the right and would make people move in his direction over time. So that as he stood out far on the right, moving to the right still seemed reasonable. That's what some of these guys are going to do, move the country slowly to the right by some of them staking out a very conservative position. And it worked on a lot of issues.

BELCHER: Did you just use Jesse Helms as a symbol of what the tea party is? Because talk about sort of a guy who's --

ERICKSON: Hey, you know, I love Jesse Helms.

BELCHER: Jesse Helms has won some of the most dirty ugly divisive campaigns in our history.

ERICKSON: You know what he was also a winner.

BELCHER: Well, he was a winner for his time. Hopefully our country's moved beyond that now. I'm glad you're saying they're right of Jesse Helms, thank you.

HENDERSON: We'll see this play out in Delaware September 14th, they've got a primary down there with a tea party candidate.

ERICKSON: Conservatives need to pull the plug on Delaware.

HENDERSON: They want to pull $250,000, the tea party so we'll see -- BELCHER: I'm not so sure they should pull the plug because I think they probably have a good chance of knocking out another establishment --

KING: I have to call a time-out because we have to get an update on Earl. Chad.

CHAD MYERS, METEOROLOGIST: Hey, John. We have a hurricane hunter aircraft flying through the hunter. Big old plane right there called "Miss Piggy." It's named after "The Muppets." It's flying through there. And eventually this thing will make this right-hand turn, away from North Carolina. We're still waiting for the 8:00 update. Right now, we're expecting those winds to be about 110 miles per hour. Still a very big storm. And then another approach to land. Not North Carolina but the cape, Cape Cod, that will happen late tomorrow night, as an 85-mile-per-hour storm. Still waiting for that slow turn to the right. There's the storm right there on radar. There's Cape Hatteras, more head city, the eye of the storm on Doppler radar. We're watching it move to the north and the northeast. We have Rob Marciano here. We'll be watching it all night long, John.

KING: Appreciate that, Chad, we'll check back in as developments warrant. I need to thank Cornell, Nia, Gloria and Erick. Politics got cut short tonight but breaking news but we'll have more. Pete on the street is asking people a tough question for me.

(COMMERCIAL BREAK)

KING: The top of the hour and "RICK'S LIST PRIME TIME" so let's check in with Rick Sanchez for a preview. Hey there.

RICK SANCHEZ, CNN HOST: Americans need to be asking a lot of questions asking about what's going on in the Gulf of Mexico. Another oil rig fire. Also, I see Chad moving over there, which means the next advisory's going to be coming in momentarily from the National Hurricane Center down in south Florida. We got both on "RICK'S LIST." Back to you, John.

KING: Our offbeat reporter Pete Dominick out on the street causing trouble. Every now and then, he has a question for people. But every now and then, and I guess today is one of those days, he goes out hunting questions for me.

PETE DOMINICK, OFFBEAT REPORTER: That's right, John King, tonight, I am going to stump you. You've been asking the tough questions the whole hour, now you have to answer them. You have five seconds. Your first pet's name. John, go.

KING: Peabody.

DOMINICK: All right.

KING: Black Labrador retriever.

DOMINICK: Let's go to Russell in San Francisco. RUSSELL: I'm Russell from San Francisco. And I'm interested in how there can be any movement in the Middle East process when both sides have such intractable position and Netanyahu can't move to the left for fear of losing his base on the right and Abbas can't move to the right for fear of losing support he has on the left. So, is this anything more than a show?

KING: What a fabulous question. He can come on anytime. He understands these issues very, very well. It is a great question because both of these leaders are considered weak, their coalitions are considered weak, can they get anything done. Some people would say no just because of that. And because the problems are so hard. Others say it is at a moment like this that maybe with the help of the administration they can try. We know the tone has been supportive. The question is, can they get the big level of trust, but the skepticism is well warranted. Pete, you got another?

DOMINICK: Well, John King, yes, I talked to Joe who I think -- at least he looks like he's from Jersey. Look at this hair.

JOE: Hey, John, I'm Joe, and with all these peace talks going on in the Middle East now between the Palestinians and the Israelis, I think the focus should more so be on Iran, the elephant in the room. What's the situation with that?

KING: Pete, don't be jealous of the guy's hair, he has good hair.

DOMINICK: John King!

KING: That too is an excellent question. One of the reasons people think Netanyahu might feel compelled to make a deal is the Palestinians and the Israelis have big differences. One thing they agree on with Mr. Abbas, not Hamas but Mr. Abbas himself doesn't like Iran so possibly a unifying force. Still very difficult. That's why the president wants the Egyptians and the Jordanians to help. Because they're worried about Iran too.

Great questions. Great foreign policy analyst there. Pete thanks very much. That's all we have tonight. "RICK'S LIST PRIME TIME" right now.